AMERICAN companies are more profitable than ever — and more profitable than we thought they were before the government revised the national income accounts last week. Wage earners are making less than we thought, in part because the government now thinks it was overestimating the amount of income not reported by taxpayers.

The major change in the latest comprehensive revision of the national income and product accounts — known as NIPA to statistics aficionados — is to treat research and development spending as an investment, similar to the way the purchase of a new machine tool would be treated by a manufacturer, rather than as an expense. That investment is then written down over a number of years.

The result is to make the size of the economy, the gross domestic product, look bigger, and to appear to be growing faster, in years when new research spending is greater than the amount being written down from previous years. For the same reason, corporate profits also look better in those years.
A lot of money is spent on research and development. Nicole Mayerhauser, the chief of the national income and wealth division of the Bureau of Economic Analysis, which compiles the figures, said that in 2012 the total was $418 billion, about one-third of which was spent by governments. That amounted to about 2.6 percent of G.D.P.

The other major conceptual change deals with pensions. Until now, corporate and government contributions to pension plans were counted as personal income only when the contributions were made. Under the revision, the government estimates how much should have been contributed to meet the promises made to workers, and counts that amount, whether it is higher or lower than the amount actually put into the pension plan. That causes personal income to appear larger in years when pension contributions are lower than they should be.

The revised numbers also reflect some better information as new data becomes available. Ms. Mayerhauser said that it now appeared that in recent years the government might have overestimated the amount of income that went unreported by taxpayers, including the amounts of unreported tips received by restaurant employees. Revising those figures down meant that workers as a group appeared to be doing even worse than they had appeared to be doing.

And that was none too well. Before the figures were revised, it appeared that wages and salary income in 2012 amounted to 44 percent of G.D.P., the lowest at any time since 1929, which is as far back as the data goes.
But the revisions cut that to 42.6 percent, which matched the revised 2010 figure as the lowest ever.

The flip side of that is that corporate profits after taxes amounted to a record 9.7 percent of G.D.P. Each of the last three years has been higher than the earlier record high, of 9.1 percent, which was set in 1929.
The charts help to demonstrate how the post-recession economy differs from the one before the downturn. In the three years from 2005 through 2007, the share of G.D.P. going to corporate profits was 1.5 percentage points lower than it was during the years 2010 through 2012. The share going to workers was 1.1 percentage points higher during the earlier years.
Corporate taxes, as a proportion of corporate profits, rose to a four-year high of 21.6 percent in 2012, but remained well below the long-term average level. Personal taxes also hit a four-year high, at 14.1 percent of personal income, but were still well below the historical average.

Man, that's a pretty sweeping generalization. I will agree that there are far too many companies operating purely for quarterly earnings, but not all of them.

And quite honestly, I don't see a way out of it without massive regulation (in addition to that which business already faces)

My opinion is let the free market work it out. The companies that mind the long term goal will do better over the long term. Either that or their system isn't any better than the short term thinkers.

At the end of the day it is all what the shareholders want. If the shareholders want quarterly profits, they get quarterly profits. If they want a long term vision, they get a long term vision.

I appreciate the thoughtful response. My response is driven by a few things: 1) in the midst of a recession, does it make any sense that we saw massive increases in executive compensation? 2) Average Fortune 500 CEO tenure is about 5 years. That's very short.

Executive compensation is a huge problem, and the free market isn't going to fix it because executives will always be motivated to protect higher pay for themselves. The government is only going to make it worse. So how do you fix it? I don't know. A part of me feels like deregulating some parts could help. For example, it is currently illegal to collude with a competitor, but if industries got together and created private sector standards for exec comp, bet we could fix a lot of problems. After all, much of the reason exec comp pay is often ridiculous is that corporations don't want competitors getting the best talent.

Quote:

What the **** do you suggest they do? Retool and hire American labor at 3x the cost, spend 10x the money they otherwise would on dealing with the massive ****ing regulations they are faced with, and pay higher payroll taxes and workmans comp?

I have no idea what the numbers are, but I'm quite certain it is staggering how expensive it is to produce anything here that is currently exported. Go ahead and mandate that everything be produced here. All that will happen is the company that used to outsource will go ****ing broke and you will import it from whatever country we used to export the jobs to.

The problem isn't with American companies. The problem lies in the environment in which American companies operate. And unless the voting constituency of the government is willing to change that environment, the constituency are the ones that should be accused of not giving one shit about it.

Agreed, though I'd add that the problem is also in the education of our work force. Our government education system is failing us BIG time and businesses should be investing more money in their workers to develop into more skilled positions.

FFS let the partisan shit go and recognize that businesses have a very favorable US environment.

What part of my post said businesses were unprofitable. However, if exporting jobs is a problem, then the problem lies in the environment in which the businesses and labor pool operate.

If government "fixed" the problem by increasing tariffs, taxes, or flat outlawed American businesses from outsourcing offshore, would the profits be high? Moreover, if the governments eased up on regulations, profitability would go higher, all things remaining constant. The profitability environment is good, but not perfect. And don't pretend like regulation is a problem.

You missed the point dude. Don't lecture me on partisan shit. I'm not partisan at all. At least not in here. I don't rail on Obama, nor did I rail on Bush when this whole outsourcing thing got en vouge to rail against. The only party I care about is me.

Quote:

Originally Posted by chiefzilla1501

I appreciate the thoughtful response. My response is driven by a few things: 1) in the midst of a recession, does it make any sense that we saw massive increases in executive compensation? 2) Average Fortune 500 CEO tenure is about 5 years. That's very short.

Executive compensation is a huge problem, and the free market isn't going to fix it because executives will always be motivated to protect higher pay for themselves. The government is only going to make it worse. So how do you fix it? I don't know. A part of me feels like deregulating some parts could help. For example, it is currently illegal to collude with a competitor, but if industries got together and created private sector standards for exec comp, bet we could fix a lot of problems. After all, much of the reason exec comp pay is often ridiculous is that corporations don't want competitors getting the best talent.

Agreed, though I'd add that the problem is also in the education of our work force. Our government education system is failing us BIG time and businesses should be investing more money in their workers to develop into more skilled positions.

I disagree with pretty much everything you posted in principle. From a practical standpoint, executive salaries are too high. But from a principle standpoint, I don't give a ****. Moreover I goddamned sure don't want anybody stepping into stop it.

I'm a free market guy and I think the free market should do it's work. If it's best for companies to pay the **** out of these guys, let them. If it's a bad deal, and they do it anyway, they will suffer. That's just the way the market works.

Additionally, I'm not at all in favor of anybody placing external limits on what anybody makes ever (exempting maybe welfare money if people think that is their "job"). If they think executives are making too much and cap it, what's to stop them from saying farmers and auto mechanics are making too much as well and capping it. And I'm sure if you asked these dudes if they've earned it, they'd probably say yes. And some companies would probably say they were worth the money. It's just the environment that executives work in. They're services are valued and they are compensated for them. If they are lacking in value, then it is the responsibility of the board of directors to find a new executive and structure his pay so as that the company gets better return on investment. There is no place for regulation in this arena IMO.

On the education thing, it's not the responsibility of the businesses to get people educated. And I am no way in favor of industry footing the bill for education. Businesses pay enough tax.

Education is on the individual. Public Schools are shitty, yes. But that isn't businesses fault.

I disagree with pretty much everything you posted in principle. From a practical standpoint, executive salaries are too high. But from a principle standpoint, I don't give a ****. Moreover I goddamned sure don't want anybody stepping into stop it.

I'm a free market guy and I think the free market should do it's work. If it's best for companies to pay the **** out of these guys, let them. If it's a bad deal, and they do it anyway, they will suffer. That's just the way the market works.

Additionally, I'm not at all in favor of anybody placing external limits on what anybody makes ever (exempting maybe welfare money if people think that is their "job"). If they think executives are making too much and cap it, what's to stop them from saying farmers and auto mechanics are making too much as well and capping it. And I'm sure if you asked these dudes if they've earned it, they'd probably say yes. And some companies would probably say they were worth the money. It's just the environment that executives work in. They're services are valued and they are compensated for them. If they are lacking in value, then it is the responsibility of the board of directors to find a new executive and structure his pay so as that the company gets better return on investment. There is no place for regulation in this arena IMO.

On the education thing, it's not the responsibility of the businesses to get people educated. And I am no way in favor of industry footing the bill for education. Businesses pay enough tax.

Education is on the individual. Public Schools are shitty, yes. But that isn't businesses fault.

I don't have a problem with entrepreneurs or private equity guys making a bazillion dollars. My biggest issue is corporate executive pay. These guys don't own businesses. They are employees abusing power to set their own pay, and they are often protected by crony boards who control the company. That has to stop. Corporate power needs to go back to the shareholders and executives need to be employees of the business.

I don't want executive compensation to be capped. I want for the abuses to stop. Number one, they need to be incentive based versus this ridiculous concept of ranking a business then riding out on a 20 million dollar golden parachutes. Secondly, there has to be greater incentive to serve the shareholders. Say on pay is a great example of an intervention that is finally creating some real power back to the shareholders and it's resulted in more sensible executive pay.

On the education issue... Training employees is a win win. For a small investment, the business gets better skill workers and is more likely to retain employees which dramatically reduces recruiting costs. If profits are rising in th e midst of a recession that signals to me that companies are cutting costs and reducing investment, and if executive compensation is increasing at the same time, that means executives are being compensated for hurting the companies they are supposed to serve.

I don't have a problem with entrepreneurs or private equity guys making a bazillion dollars. My biggest issue is corporate executive pay. These guys don't own businesses. They are employees abusing power to set their own pay, and they are often protected by crony boards who control the company. That has to stop. Corporate power needs to go back to the shareholders and executives need to be employees of the business.

I don't want executive compensation to be capped. I want for the abuses to stop. Number one, they need to be incentive based versus this ridiculous concept of ranking a business then riding out on a 20 million dollar golden parachutes. Secondly, there has to be greater incentive to serve the shareholders. Say on pay is a great example of an intervention that is finally creating some real power back to the shareholders and it's resulted in more sensible executive pay.

On the education issue... Training employees is a win win. For a small investment, the business gets better skill workers and is more likely to retain employees which dramatically reduces recruiting costs. If profits are rising in th e midst of a recession that signals to me that companies are cutting costs and reducing investment, and if executive compensation is increasing at the same time, that means executives are being compensated for hurting the companies they are supposed to serve.

Aren't most executive compensation packages heavy with stock options? They used to be.

And it goes back to a free market philosophy. If the companies are dumb enough to get shitty BOD's and pay some loser a shitton of money, their business will suffer on account of it and some competitor that is more efficient and does a better job will take the first company's marketshare.

To me it is what it is.

On the education thing: Oh. I thought you were talking about education not training. Yeah, ROI on training dollars is typically pretty high. And it seems like as many out of work/looking for better work employees out there, a company had ought to be able to come up with some guys cheap and train them. On the other hand, it probably means there are a lot of already-trained professionals out of a job. If you can get a finance guy with 8 years experience who got laid off in favor a guy that had 10 years experience, and the options are him or a n00b you have to train, you're taking the guy with experience.

Philosophically, I agree with you companies should opt to train their employees to work more efficiently.

Its good to see the work continues to reframe profit as evil . We must break the hold profit has and learn to celebrate losses that are good and correct.

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Originally Posted by theelusiveeightrop

Profit is bad mmmmmmkay.

Profit is good. The problem is that profits are growing, executive pay is growing, especially at the top levels, and the vast, vast majority of workers pay is NOT growing, relative to inflation.

There's a mountain of data supporting all this. The American dream is becoming unattainable for too many -- not because of lack of effort or intelligence, but because the system is building in a number of impediments.

__________________
"I love signature blocks on the Internet. I get to put whatever the hell I want in quotes, pick a pretend author, and bang, it's like he really said it." George Washington

Profit is good. The problem is that profits are growing, executive pay is growing, especially at the top levels, and the vast, vast majority of workers pay is NOT growing, relative to inflation.

There's a mountain of data supporting all this. The American dream is becoming unattainable for too many -- not because of lack of effort or intelligence, but because the system is building in a number of impediments.

Why do they need to? There is a mountain of people that are out of work or are underemployed that will work cheap.

Aren't most executive compensation packages heavy with stock options? They used to be.

And it goes back to a free market philosophy. If the companies are dumb enough to get shitty BOD's and pay some loser a shitton of money, their business will suffer on account of it and some competitor that is more efficient and does a better job will take the first company's marketshare.

To me it is what it is.

On the education thing: Oh. I thought you were talking about education not training. Yeah, ROI on training dollars is typically pretty high. And it seems like as many out of work/looking for better work employees out there, a company had ought to be able to come up with some guys cheap and train them. On the other hand, it probably means there are a lot of already-trained professionals out of a job. If you can get a finance guy with 8 years experience who got laid off in favor a guy that had 10 years experience, and the options are him or a n00b you have to train, you're taking the guy with experience.

Philosophically, I agree with you companies should opt to train their employees to work more efficiently.

The problem with stock options is they get big money if they win, they don't lose money if they lose. There are some companies experimenting with pure stock because at least there's downside risk. Compensation is very tricky. There are always going to be executives who game the system.

On winners and losers... The market isn't truly free if corporations are run by boards where the fix is in, and government picks winners or losers. Look, I don't mind if Apple or GE executives make a gazillion dollars in compensation. They earned that. But when poorly performing CEOs get raises, then ride out in $20M golden parachutes when they fail, there's a problem.